Basics of Saving & Investing : Financial Decisions (Unit 1) · Web viewBasics of Saving and...

INDIANA DEPARTMENT OF FINANCIAL INSTITUTIONSCONSUMER CREDIT EDUCATION

CONSUMER FINANCEUNIT 1

The Basics of Financial Planning

INTRODUCTIONThis teaching guide is a product of cooperative efforts to provide accurate and objective information for teaching basic personal financial planning, saving, and investing. The easy-to-use format is designed for educators.

The teaching guide is an introduction to financial planning and investing. It can be the framework of a short course or a supplement to an existing course in mathematics, home economics, business education, economics, and/or personal finance.

KEY CONCEPTSBasics of Saving and Investing: A Teaching Guide contains learning objectives that focus on:

1-1

how to design a personal financial plan

how financial markets work

how to select among various savings and investment options

how to find and use investment information

how to recognize and victim-proof yourself against investment fraud

Each unit contains learning objectives, background information for teachers and students, suggested activities, overhead transparency masters, student handouts and worksheets, additional resources, and student exercise/s. The appendix includes sources of additional information and a glossary of terms.

Hundreds of classroom teachers have used earlier editions of this guide. We hope you and your students find it a useful educational tool.

You can successfully manage your money if you have the know-how and the will to set aside some of today's income for the things you will want and need in the future.

This unit will focus on basic financial planning principles to be considered by people prior to investing.

UNIT OBJECTIVES Discuss the benefits of planning personal financial affairs.

Consider factors that influence financial decisions.

Design a personal financial plan.

Discuss ways to protect assets against financial risk.

TOPIC 1 Personal Financial Planning

OBJECTIVE Students will learn that saving a percent of income is the start of committing to a

plan to meet their financial goals.

Students will know the benefits of a personal financial plan.

MATERIALS NEEDEDPretest ExerciseReading 1 "Benefits of a Personal Financial Plan"Worksheet 1”Money Management Checklist”

DIRECTIONS

1. Ask students to write a brief paragraph using the Pretest Exercise. [See “Answer Key.”]

2. Distribute Reading 1, "Benefits of a Personal Financial Plan" and discuss the benefits of having a financial plan.

3. Hand out the Worksheet 1, “Money Management Checklist.” Discuss areas where

participants plan to improve their financial planning knowledge and skills.

TOPIC 2 Factors That Influence Decisions

OBJECTIVE Students will learn the many different factors that can influence financial decisions.

Students will create different case studies on decisions that influence financial goals.

MATERIALS NEEDEDReading 2 "Factors That Influence Financial Decisions”Transparency 1 "Financial Tasks for Young Adults”Case StudyReading 3 "Developing a Financial Goal”Worksheet 2”Budget Worksheet”Reading 4 “Being Smart About Credit”Transparency 2 “Your Credit Report”Transparency 3 “Keys to Credit Success”Student Exercise 1

DIRECTIONS1. Distribute to students the Reading 2, "Factors That Influence Financial Decisions."

As a class read and discuss the factors that effect financial decisions. Show Transparency 1.

2. Have students work in small groups to provide local data for the Mary Ortega Case Study. This data will be used to develop a financial plan for Mary, using the worksheets in Topic 3 of this Unit.

3. Extended Learning Activity

Teacher and student groups could create additional case studies for the following situations, then develop a financial plan for each situation, using the worksheets in Topic 3.

1. College student living at home 2. Young couple, no children 3. Couple with two teenagers 4. Single parent with one child 5. Retired person living alone

Have students identify and discuss similarities and differences in financial goals, income, expenses, and financial plans for various stages of the life cycle.

4. Distribute to students the Reading 3, "Developing a Financial Goal." As a class read and discuss how to develop and reach financial goals.

5. Have student complete a budget using Worksheet 3, “Budget Worksheet.”

6. Have students take the Students Exercise 1 and discuss the answers. [See “Answer Key.”].

TOPIC 3 A Plan to Reach Financial Goals

OBJECTIVE Students will develop a financial plan.

Students will consider personal financial goals, complete a net worth statement, estimate income, record expenses, and focus on areas where expenses could be reduced, such as gift purchases.

MATERIALS NEEDED

Worksheet 3 “Net Worth Statement, Personal Balance Sheet”Worksheet 4 “Estimate Your Income”Worksheet 5 “Record Your ExpensesWorksheet 6 “Match Income & Expenses”Worksheet 7 “Gift Expenditure Chart”Transparency 4 “Average Household Spending”Transparency 5 “Consumer Expenditure Survey”Student Exercise 2

DIRECTIONS1. Using the Financial Case Study on Mary Ortega developed in Topic 2 for a typical

young person living away from home in your area, have learners complete Worksheets 3-5 in this lesson.

The 5 worksheets provide tools for learners to consider personal financial goals, complete a net worth statement, estimate income, record expenses and focus on areas where expenses could be reduced, such as gift purchases.

2. Discuss the price of personal financial goals, such as:

spring break vacation trip wedding with 100 guests furniture for a new apartment college education

3. Discuss the Transparencies “Average Household Spending” and the related chart titled “Consumer Expenditure Survey.” Point out that housing and transportation together make up 52 percent of average household expenses.

4. Example discussion questions are:

What percentage of total household spending in 2004 was spent on average on health care? (5.35%) On entertainment? (5.05%)

How much is spent in 2004 on transportation? ($7,215) What percentage of total spending is this? (19.18%)

5. Discuss the Transparencies ”Consumer Expenditure Survey,” “Your Credit Report” and “Keys to Credit Success.” If your class has been taught Credit Rights Study Unit 1, “An Overview of Consumer Credit” and Unit 5, “Fair Credit Reporting Act,” you can review the information in those study units with your students.

6. Have students take the Students Exercise 2 and discuss the answers. [See “Answer Key.”].

TOPIC 4 Protection Against Financial Risk

OBJECTIVE Students will learn the need for an emergency fund.

Students will analyze emergency fund needs under different situations.

MATERIALS NEEDEDReading 5 “Emergency Fund”Worksheet 8 “Readings on Investments”Post-Test ExerciseStudent Exercise 3Hidden Word PuzzleAdditional ResourcesBrochures

DIRECTIONS1. Distribute to students the Reading 4, "Emergency Fund." As a class read and discuss

having an emergency fund.

2. Using the suggested guideline that every household should have an emergency fund equal to three times monthly take-home pay, analyze the emergency fund needs of a young single person living alone with monthly take-home pay of $1,500.

3. Contrast this situation with that of a single parent with two school-aged children and

monthly take-home pay of $1,500.

4. Have participants collect and review current articles on personal financial planning, using Worksheet 8, “Readings on Investments.”

5. Post-Test Exercise. Have students review their Pre-Test Exercise paragraph they wrote at the beginning of the unit. “Your uncle just gave you $1,000 to spend any way you wish. What will you do with this money and why”? Ask students the following question: Have your feelings about the use of money changed?

This unit has highlighted basic financial planning principles to be considered prior to investing. After establishing a personal financial plan as a foundation, one can continue to build wealth through savings and investments.

6. See our Mini-Lesson “Map Your Financial Future” for additional financial information.at: http://www.in.gov/dfi/education/MiniLessons/map_your_financial_futureMiniL.htm.

http://www.in.gov/dfi/education/MiniLessons/map_your_financial_futureMiniL.htm

7. Give the Student Exercise 3 and discuss any problem areas. [See “Answer Key.”]

8. Hand-out the Hidden Word Puzzle and have students see if they can find all of the words.

9. Hand-out copies of the following brochures for review and discussion.

What is a BudgetFair Credit ReportingFinancial Tips

10. Review Additional Resources for additional information available.

ANSWER KEY

STUDENT EXERCISE 11. G. emergency fund

2. K. college education

3. A. value

4. J. financial plan

5 . E. net worth

6. B. goal

7. D. pay yourself first STUDENT EXERCISE 21. B. total assets minus total liabilities

2. C. set aside money for regular savings

3. A . a savings account equal to two year’s income

4. A . $87,000

5. D . $65,650

STUDENT EXERCISE 31. False

2. False

3. False

4. True

5. False

6. True

7. False

VOCABULARY

adverse information — Information in a credit report which indicates a consumer may be unable or unwilling to repay credit.

balance Balance is the amount of money you have in your bank account.

bank A bank is a business that offers you a place to keep your money and uses it to make more money. Banks offer you different services for keeping your money.

checking account A checking account is an account that lets you write checks to pay bills or to buy goods. The financial institution takes the money from your account and pays it to the person named on the check. The financial institution sends you a monthly record of the deposits made, withdrawals, and the checks written.

Credit Union A nonprofit financial institution owned by people who have something in common. You have to become a member of the credit union to keep your money there.

credit bureau — A firm which collects and provides information to creditors, employers, and insurers on how consumers use credit as well as other personal and financial data.

credit file — All the information a consumer reporting agency has in its records on a particular consumer.

credit rating — A consumer's relative credit-worthiness as determined by a creditor based on information obtained from the credit report, credit application, and interview.

credit report — A written, oral, or other communication from a credit bureau to a creditor, employer, or insurer concerning a consumer's credit history.

consumer reporting agency — Any firm which regularly collects and provides to others information on consumers' bill-paying habits including credit bureaus, investigative agencies and some creditors.

deposit A deposit is money you add to your account. When you add money to your account, you must fill out a deposit slip. A deposit slip tells the bank how much money you are adding to your account.

direct deposit Direct deposit is one method your employer or a government agency might choose to give you your paycheck or benefit check. With direct deposit, your paychecks or benefits checks are electronically transferred and directly deposited into your account. Some banks will not charge the monthly fees if direct deposit is used.

interest Interest is the extra money in your account that the bank pays you for keeping your money. One of the main advantages of having a deposit account is the interest you earn.

investigative report — A report on a consumer which contains information on the individual's character, reputation, personal habits, and life-style obtained through interviews with neighbors, friends, and associates.

savings account A savings account is an account that earns interest. You can open a savings account with a few dollars, but you might pay a monthly fee if your balance is below a certain amount. Some banks will give you a booklet called a “passbook” to keep track of your money.

statement of dispute — A statement included in a credit or investigative report in which a consumer explains why he/she believes information in a report is inaccurate.

valid business purpose — A credit, employment, insurance, or licensing decision or other bona fide reason for needing information contained in a credit report.

UNIT 1 — The Basics of Financial Planning

PRETEST EXERCISE

DIRECTIONS: Ask students to write a brief paragraph on the following:

Your uncle just gave you $1,000 to spend as you wish.

What will you do with this money and why?

Name ______________________________________Date ____________________

UNIT 1 — The Basics of Financial PlanningTopic 1, Reading 1

BENEFITS OF A PERSONAL FINANCIAL PLAN

Could you spend 10 percent less and still have fun? If you could save 10 percent of your income for future goals, what would those goals be? It takes more than luck to get what you want out of life. You have to know what you want and then commit to a plan to meet your goals. The hazards of not planning include the risk of having a lifestyle of limited choices.

A financial plan can be a positive force that helps strengthen personal relationships as people work together to achieve goals. A financial plan helps people:

live within their income

identify financial priorities

allocate funds to meet expenses

meet financial emergencies and reduce credit use

reduce uncertainty and conflict about financial affairs

gain a sense of financial independence and control

save and invest to reach financial goals

People want to feel comfortable about their financial affairs. A recent national survey showed that 75% of college freshmen are concerned about their future financial security as compared to only 44% in 1970.

What causes some people to feel financially secure and others not? Conditions that promote financial well being include:

income to meet current needs

savings to meet financial emergencies

insurance to cover major risks (health, life, property, and disability insurance)

savings and investment programs to meet future goals

participation in household financial affairs

UNIT 1 — The Basics of Financial PlanningTopic 1, Worksheet 1, Page 1

Name _________________________________ Date _________________________

A MONEY MANAGEMENT CHECKLIST Discuss these money management practices with your family

and think of areas that could be improved.

Practices OK Need toimprove

We have a filing system to keep track of household bills, payments, and financial records.

We have a written list of financial goals with an estimated cost of each goal.We regularly set aside money to achieve specific goals.

We have an emergency fund available to use if necessary for minor catastrophes that are not covered by insurance.

We have a written plan to allocate income to meet expenses and to save for future goals.

We review and revise the family financial plan periodically to meet changing financial goals and needs.

We compare costs and services of bank checking accounts, knowing that charges and services can vary widely.We move money from bank savings into higher return investments when the account balance exceeds current needs.We avoid impulse buying because unplanned spending could sabotage financial plans.

We avoid overspending for holidays and special events by setting gift spending limits that are in line with family goals.

When we have a cash flow problem, we cut back on spending until expenses are in line with income.

We use credit carefully and avoid interest charges when possible by paying off credit card debt monthly.We save for major purchases when possible rather than to use credit cards and pay 14% to 21% interest on borrowed money.We know what insurance protection our employer(s) provides and supplement that insurance where necessary.


Name _________________________________ Date _________________________

A MONEY MANAGEMENT CHECKLIST Discuss these money management practices with your family

and think of areas that could be improved.

Practices OK Need toimprove

We compare insurance coverages and costs, and purchase only the needed insurance.

We have our employer(s) withhold the right amount in taxes in order to avoid lost interest income on large tax refunds

We check out charities before making contributions from phone or door solicitations, knowing that some are frauds.

We just say no to telemarketing investment deals, knowing that if it sounds too good to be true it is usually fraudulent.

We carefully consider the tax-advantaged saving and investment opportunities provided by our employer(s).

We compare the health insurance options available through our employer(s) and choose the best option for our needs.

We read current personal finance articles and work to improve our knowledge of personal money management.

COPYRIGHT 1992, 1994, 1997, 1998 Eastern Michigan University National Institute for Consumer Education Teaching Materials in the guide may be reproduced for non-commercial educational purposes. The information is for general educational purposes and is not intended as specific advice for individuals.

UNIT 1 — The Basics of Financial PlanningTopic 2, Reading 2, Page 1

FACTORS THAT INFLUENCE FINANCIAL DECISIONS

Financial independence is an important goal for most people. Yet people sometimes miss the opportunity to become financially independent because they avoid making decisions and taking action to influence their financial well being. Sometimes they may not know what action to take. At other times, they simply procrastinate.

Among the factors that influence our financial decisions are our values, goals and attitudes, age and stage in the life cycle, level of education, and external factors such as income and employer provided benefits.

VALUES AND GOALS

A value is something that a person considers to be important. Financial values vary from person to person. Not everybody wants the same lifestyle. Some people dream of having expensive cars, spacious homes, and many possessions. Others search for the simple life, uncluttered by material goods.

Our values influence the way we earn, spend, save, invest, and spend money. Personal values are influenced by family and friends, by television and movies, and by what attracts us in the marketplace.

For example, you may want to go to college, yet you want to earn money to buy a new car. If you cannot afford both, you must make a choice.

A goal is a preferred future condition. It is more than a hope. Our goals are based on our values. Since we have a limited amount of money, we choose those things we value most. Saving part of current income to purchase a car is taking action to reach a goal.

Social scientists explain that people often use money to gain security, power, freedom, love, and acceptance. If taken to extreme, such motivations will produce an unbalanced lifestyle. For example, the search for power can turn to greed which, in turn, can foster unethical behavior in the marketplace. Unit 5 will focus on ethical standards as a deterrent to investment fraud.


Age and Stage in the Life Cycle

Financial responsibilities change as people live through various stages of the life cycle. Young single adults face a different set of financial tasks than do households with young children. People in their 40s and 50s are usually at the peak of their lifetime annual earnings. Yet these people often face financial challenges such as paying college costs for their children, stepping up their retirement savings program, and taking financial responsibility for aging parents.

Among the tasks young adults face as they move into the 18-26 age group are to:

select and train for a career

maintain a good credit record

develop a personal financial plan

consider insurance protection

start a savings and investment program

Education and Income

The odds are against winning the lottery or inheriting great wealth. So the primary source of funds for most people is income from employment. On average, the higher your educational level, the higher your annual income and overall lifetime income will be.

A steady job builds financial security while unemployment can play havoc with financial well being. People with job skills that are in high demand are less likely to be unemployed. In addition, these people have the choice of jobs that offer a favorable package of income and fringe benefits.

Employer Provided BenefitsMany employers provide group fringe benefits that would be expensive if purchased by individuals. A few years ago employee benefits left little opportunity for individual choice. Today, employers offer many options. For example, several different health insurance plans may be available to the employee.


Topic 2, Reading 2, Page 3

Some employers contribute to employee savings and investment programs. For example, a company may contribute 50 cents for every dollar the employee saves or invests in company-approved plans. Some employers offer flexible compensation plans which allow employees to divert some of their earnings to options such as child care or legal services. These flexible plans can be adapted to meet the different needs of households at various stages of the life cycle. As the number of options grows, so does the need for informed financial decision making.

A financial plan is a tool to help you reach your goals. It is not a straight jacket to keep you from enjoying life. Think of a financial plan as a road map to help you get where you want to go. People use a road map when they begin a trip where they have not traveled before, yet many will take a financial journey through life without a road map. As a sage once said, "If you don't know where you are going, you may end up somewhere else."

UNIT 1 — The Basics of Financial PlanningTopic 2, Transparency 1

FINANCIAL TASKS OF YOUNG ADULTS

Select and train for a career

Maintain a good credit record

Develop a personal financial plan

Consider insurance protection

Start savings and investment programs

UNIT 1 — The Basics of Financial PlanningTopic 2, Case Study 1, Page 1

FINANCIAL CASE STUDY - MARY ORTEGA

Single Young AdultLiving Away from Parent's Home in a City Near Home

Mary Ortega is 22 years old. She earns $_________ annual salary as a (position) _______________________________ in (city, state) ____________________.

What Mary Owns

Mary owns a used Ford Escort valued at $6,000. She has $300 cash in her purse, and $900 in a bank checking account. She owns jewelry valued at $400, a CD sound system valued at $300, and a laptop computer valued at $1,200. Miscellaneous personal items such as clothes, books, luggage, a bicycle, furniture, and dishes valued at $1,100.

Mary did not purchase the optional term life insurance policy available through her employer because she has no dependents.

Mary owns a stock mutual fund with a current value of $800. She does not contribute to the 403-b Retirement Savings Program through her employer.

What Mary OwesMary owes $4,000 on her used car, and $6,000 on college debts. Her VISA credit card balance due is $850. The credit card purchases were largely for furniture for her new apartment and clothes for work.

Mary's Financial GoalsMary wants to join her friends for a trip to _____________ next year, and she estimates the cost will be $_________. Mary would like to pay off her college loan, reduce her credit card debt, and increase her savings program so she can complete decorating her apartment and add to her collection of clothes and accessories for work and play.

Marriage is not in the picture for Mary this year, but her dream for three years from now is to have a formal wedding with perhaps 150 guests.


Mary's Income

In addition to her salary, Mary will receive an annual cash gift of $1,000 from her grand-parents. Mary reinvests her earnings from savings and investments. She expects no other income next year.

Mary's Monthly ExpensesHousing:

Rent $________Electrical bill $________ Telephone $________ Gas bill $________

Food and Clothing:

Food at home $________ Food away from home $________ Clothing $________ Laundry and cleaning $________

Car:

Mary considers her car to be an expensive convenience since public transportation is good in the city and she is within walking distance of shopping and entertainment.

Gas and oil $________Maintenance costs $________ Parking at her apartment $________ License costs $________ (per year divided by 12).

Loans:

Car payment $________College loan payment $________ VISA credit card payment $__50.00__

Insurance:

Auto insurance $________ (per year divided by 12)


She does not own life or renter's insurance. Her medical, dental, and disability insurance are covered by her employer. Her insurance covers regular medical exams. She takes no medications.

Entertainment and Recreation:

Magazine subscriptions $________ Health club dues $________ Cable TV and movies $________Vacation $________ (one per year divided by 12)

Set Asides Savings and Investments:

Mary's only "emergency fund" is the $900 in her checking account. She would like to increase savings to an amount equal to three months living expenses.

She knows she could sell her mutual fund shares in case of emergencies, so she authorized her bank to automatically deposit $50 each month from her checking account into her mutual fund account.

Other:

Haircuts and personal care $________ Contribution $________ holiday and birthday gifts $___50.00_($600 a year divided by 12)


DEVELOPING A FINANCIAL PLAN A financial plan works best if you keep it simple, use realistic income and expense estimates, and periodically review and adjust the plan to reflect changing conditions and goals. A common mistake people make is to prepare a financial plan and then fail to put it into action.

An effective financial plan involves information gathering, decision making, action, and evaluation. Steps in the financial planning process include:

1. identify financial goals

2. figure net worth

3. estimate income and expenses

4. review personal debt situation

5. allocate savings to reach goals

6. balance income and expenses

7. implement the plan

8. review and modify the plan as necessary

Questions people may ask while designing their financial plan include:

What are my short and long term goals?

What is our total income after taxes and deductions?

What are our current living expenses?

What changes in living expenses do we expect?

How much can we save each month for future goals such as college expenses or a down payment on a car?

Are we using credit wisely?

How can we protect against inflation?

How can we plan for retirement?


IDENTIFY GOALS The first step in designing a financial plan is to identify your goals. Saving and investing will be more successful if you have specific goals in mind. And it is easier to identify and rank goals if you group them into short-term and long-term goals.

Short-term goals are those to be reached within a year or less. Examples of short term financial goals are to build an emergency fund, buy a new coat, pay off a charge card, or build a holiday gift fund.

Long-term goals are those to be achieved in more than a year, sometimes five or more years. Examples of typical long-term goals are home ownership, college education, special dream vacation, money to start a business, and a comfortable retirement income.

Short and long-term goals are often related. A short-term goal may be to save $100 a month in order to reach the long-term goal of saving $3,000 for a down payment on a new car. After you have identified your goals, the question is: how much will each goal cost? Are some goals more important than others? Decide when you hope to reach each goal and estimate how much money to save each month to reach each goal. Where will you put your savings dollars? Units 3 and 4 will explore savings and investment choices, and the effects of compounding on savings.

Figure Net Worth Once you are earning a living, you should prepare a net worth statement once a year. This will enable you to compare your annual net worth statements, and if necessary, modify your financial behavior or your goals to meet your changing financial situation.

A net worth statement, sometimes called a balance sheet, is a comparison of what you own and what you owe. It is like a photograph of your financial condition at a specific time.

To figure your net worth, list all of the things you own (assets), then list money owed to others (liabilities). Total your assets and your liabilities, then subtract your total liabilities from your total assets. Do you have a positive or a negative net worth?

It is not uncommon for young adults to have a negative net worth as they incur debts greater than their current income. A recent U.S. Census Report revealed that 11% of households have a zero or negative net worth while 9% were worth a quarter million or more. As with income, wealth tends to rise with educational level and is higher for home owners and married couples.


Estimate Income and Expenses Total all the income you expect to receive during the coming year. Begin with regular income such as wages, gifts, allowances, interest, and dividends.

Keep careful records for two or three months to see where the money goes. Use old records, receipts, bills, and canceled checks to estimate future expenses. Use the Budget Worksheet.

Now is the time to consider which expenses can be cut back and which should be increased. If you spent too much last year on clothes and recreation, you may decide to cut back on spending in these areas and apply the money to a specific goal.

Expenses that come due periodically can be broken down into monthly amounts in the budget. For example, if your car insurance is $1,200 per year, payable in two payments of $600, it could be shown in the budget as a $100 monthly expense. During months when there are no car insurance payments the money can be set aside in a savings account so that when the payment is due, the money is there to pay for it.

Allocate Savings to Reach Goals Financial advisors often suggest that you pay yourself first. That is, establish a set amount to save each payday and put it in savings rather than spending the money on current consumption. The habit of regular savings for future goals is a powerful financial tool, even if the amount saved each payday is small. People living at low income levels may find it difficult to save money because current income is needed for current living expenses, but even a few dollars a month can grow and contribute to financial independence.

Balance Income and Expenses Compare your total monthly income with the total estimated expenses. If expenses exceed income, where are you overspending? Which expenditures can be postponed? How can you increase your income?

If your income exceeds expenses, you can increase savings for goals, satisfy more immediate wants, and increase giving to worthy causes.

Gifts are among those extra expenses that over time, can throw a budget way out of line. We tend to buy gifts out of obligation or on impulse and we do not take time to comparison shop. It helps to review what you spent on gifts last year. If you feel that you overspent on gifts, consider ways to reduce spending this year.


While it can be helpful to compare your expenses with what other people spend, each household's situation will be different, and decisions should be based on your financial goals and current situation.

The U.S. Bureau of Census conducts an annual consumer expenditure survey and reports the data in terms of average annual spending by house-holds. For information on the most recent data, contact the Bureau of Labor Statistics at

Implement the Plan Taking action to implement and monitor the financial plan is essential to its success.

Who will:

pay the bills? balance the checkbook? review monthly financial statements? set up a savings account for financial emergencies? shop for the best value in goods and services? check out potential saving and investment plans? fill out the income tax forms?

It is important that each household assign tasks and take action to carry out the financial plan. While one person may pay the bills and keep financial records, all adult household members should be involved in major decisions that affect household income and expenses. Open communication among family members about financial affairs can help avoid problems that stem from lack of information or differing opinions about how money is to be used.

Review and Modify the Financial Plan

A financial plan is not a static thing. It is a tool to help you reach your financial goals. Keep reviewing and modifying the plan until you and other household members are comfortable with the way you are using your income.

UNIT 1 — The Basics of Financial PlanningTopic 2, Worksheet 2

BUDGET WORKSHEET

FIXED EXPENSES:Rent/mortgage............................................................................__________

Utilities.......................................................................................__________

Credit payments.........................................................................__________

Medical.......................................................................................__________

Other..........................................................................................__________

FLEXIBLE EXPENSES:Food...........................................................................................__________

Clothing......................................................................................__________

Transportation............................................................................__________

Household..................................................................................__________

Personal.....................................................................................__________

Other..........................................................................................__________

TOTAL EXPENSES.....................................................................__________

MONTHLY TAKE-HOME PAY...................................................__________

LESS TOTAL EXPENSES.........................................................__________

SAVINGS / AVAILABLE CASH....................................__________

Name ______________________________________Date ________________


BEING SMART ABOUT CREDITMore and more high school and college students are using credit cards. Credit is important because it shows merchants, banks, employers, and landlords how reliable you are when it comes to debt repayment. A bad credit history can make it tough to buy a house, a new car, or the furniture for a new apartment.

Fewer that 40%t of American credit card holders pay the entire balance they owe each month. When they sign the credit application they agree to pay interest on the balance owed. If you use a credit card that charges 18% interest and you do not pay the entire balance each month, you are adding 18%t to the cost of the items you buy.

If you only make the minimum payment on your credit card, it can take 10 to 20 years to pay off a purchase. In the meantime, the interest you pay may add up to more than the cost of the original purchase!

Your credit report is an important record that can influence your financial life for years to come. It contains your credit history and debt repayment record. Future employers, landlords, and credit grantors are among those who can get a copy of your credit report from credit reporting agencies. College students who fail to pay their phone bills, for example, can have a negative credit report. Negative information will likely stay on your credit record for seven years, a bankruptcy for ten years. For employment and mortgage applications over $75,000, negative information can be kept for a lifetime.

Credit is a powerful personal finance tool that can make it possible to get your first car and a home mortgage. Smart use of credit means avoiding the trap of using credit cards indiscriminately to simply acquire more things. Ask yourself:

Do I really need it? Can I really afford it?

Why exactly do I want it?

What happens if I can't pay this off?

REVIEW PERSONAL DEBT SITUATION Credit allows people to have and enjoy things now and pay for them later. It can be a cushion in emergencies and it is convenient. But credit costs money and tempts us to overspend. People who cannot pay their debts will soon have an unfavorable credit report which can influence their ability to obtain new credit for years to come.

How much debt can you afford? One rule of thumb is that no more than 20% of a house-hold's take-home pay should be committed to consumer installment and credit card debt.


Paying cash is almost always less expensive than using credit. When you do use credit, it is in your best interest to borrow as little as possible, seek the lowest finance charge, and pay off the loan as soon as possible.


Your Credit ReportWhat is a credit report?

your credit history and debt repayment record

Who can get a copy? employers, insurance agencies,

landlords, credit grantors

any subscriber of the credit reporting agency- With your permission


KEYS TO CREDIT SUCCESS

Reduce credit card debt

Pay off card balance monthly

Avoid excessive spending

Do I really need it?

Why do I want it?

What are the tradeoffs?

UNIT 1 — The Basics of Financial PlanningTopic 2, Student Exercise 1

STUDENT EXERCISE 1FINANCIAL DECISIONS

Directions: Match each of the terms listed below with the numbered definition. Write the letter in the space provided.

A. valueB. goalC. decision makingD. pay yourself first

E. net worthF. living expensesG. emergency fund H. insurance

I. budget J. financial planK. college educationL. investments

1. _____ money that is readily available for unexpected expenses

2. _____ example of a typical long-term goal

3. _____ something that a person considers to be important

4. _____ an organized process of allocating income to achieve financial goals

5. _____ what you own minus what you owe

6. _____ a specific statement about a desired future condition

7. _____ the idea that one should regularly set aside money for savings

Name ______________________________________ Date ____________________


NET WORTH STATEMENTPersonal Balance Sheet

ASSETS - WHAT YOU OWNCash on hand

Checking Account

Savings (CDs, IRAs, U.S. Savings Bonds, etc.)

Cash Value of Life Insurance

Personal property (market value of car, jewelry, bicycle, home, etc.)

Money owed you

Investments (market value of stocks, bonds, mutual funds, etc.)

Other

Total Assets

LIABILITIES - WHAT YOU OWECredit and charge card balances

Installment loans (auto, furniture, bank loan)

Personal loans

Mortgage balance

Educational loans

Other

Total Liabilities

NET WORTH (Total Assets minus Total Liabilities)

Name________________________________________ Date_____________


Name _________________________________ Date _________________________

ESTIMATE YOUR INCOME WORKSHEET Month 1 Month 2 Month 3

Wages (after deductions)• Wage Earner 1

• Wage Earner 2

Social Security

Gifts/Allowance

Interest

Dividends

Other*

MONTHLY TOTALS

* Other Income could include: Retirement Payments, Unemployment Payments, Alimony/Child Support, Disability Payments, Annuity Payments, Rents on Real Estate.


Name ____________________________________ Date ______________________

RECORD YOUR EXPENSES 3 MONTH WORKSHEET

Month 1 Month 2 Month 3HOUSINGRent or MortgageElectricityGas/OilTelephoneWater/SewerProperty TaxFurnishings/EquipmentFOOD/CLOTHINGFood at HomeFood Away from HomeClothingLaundry/CleaningTRANSPORTATIONBus, Train, TaxiGasoline and OilAuto MaintenanceParking/TollsLicenseLOANSAuto LoansStudent LoansOther LoansINSURANCELife / DisabilityMedical/DentalAutoHomeowners/Renters


Name ______________________________ Date ____________________________

RECORD YOUR EXPENSES

3 MONTH WORKSHEET

EDUCATION AND PLAY Month 1 Month 2 Month 3Tuition and BooksSubscriptions/DuesRecreation/Cable TVVacationsHEALTH CAREDoctorsDentistMedicinesSET-ASIDESEmergency FundSavings for GoalsOTHERPersonal CareChild CarePet Food and CareAllowancesGiftsContributionsMONTHLY TOTALSEDUCATION AND PLAY


Name ________________________________________ Date __________________

MATCH INCOME AND EXPENSESMonth 1 Month 2 Month 3

IncomeExpensesSurplus or Deficit

If Expenses Exceed Income If Income Exceeds Expenses

Where are you overspending?

Where can you cut back?

Which expenditures can be postponed?

How can you increase income? o A better job o A second job

Increase savings for future goals.

Satisfy more immediate wants.

Increase giving.


Name _______________________________ Date ___________________________

GIFT EXPENDITURE CHART

Gifts are among those extra expenses that when added together can throw a budget way out of line. People tend to buy gifts on impulse and fail to comparison shop. 1. Place a total dollar amount by each category of gift spending last year.2. Analyze last year's gift spending and estimate how much you will spend this year.3. Decide whether you will spend more or less on gifts this year than last year.

Spent on gifts last year Plan to spend this year

Birthdays $ $

Anniversaries

Weddings

Births

Deaths

Valentine's Day

Easter

Mother's Day

Father's Day

Graduation

Christmas & Hanukkah

Other

Total $ $

Will you spend more or less on gifts this year than last year? Why?


Topic 3, Transparency 4

AVERAGE HOUSEHOLD SPENDING 2004

Source: U.S. Department of Labor, Bureau of Labor Statistics.


CONSUMER EXPENDITURE SURVEY2002-2004

2002 2003 2004 Percent Change 2002-03 2003-04

Income Before Taxes 40,770 42.770 44,299 4.91 3.51

Average Annual Expenditures 35,097 36,251 37,622 3.29 3.78

Food 4,789 4,921 5,094 2.76 3.52

At home 2,830 2,848 2,968 .64 4.21

Away from home 1,960 2,073 2,126 5.77 2.56

Housing 11,509 11,843 12,188 2.90 2.91

Apparel and services 1,704 1,708 1,816 .28 6.32

Transportation 6,539 6,815 7,215 4.22 5.87

Health care 1,872 1,931 2,012 3.15 4.19

Entertainment 1,756 1,844 1,902 5.01 3.15

Insurance and Pensions 3,303 3,409 3,393 3.21 -.47

Life/Personal Insurance 389 396 397 1.80 .25

Pensions/Social Security 2,914 3,012 4,002 4.28 5.87

Miscellaneous* 3,625 3,780 4,002 4.28 5.87

* Includes alcoholic beverages, tobacco, personal care products and services, reading, education, cash contributions and miscellaneous.

Source: U.S. Department of Labor, Bureau of Labor Statistics.


STUDENT EXERCISE 2Directions: Circle the letter which best completes the sentence.

1. Financial net worth is

A. liquid assets minus long-term investmentsB. total assets minus total liabilitiesC. total investments minus total debtD. original securities price minus market value

2. "Pay yourself first " suggests that a person should

A. avoid creditors and purchase non-essentialsB. establish a business and work as presidentC. set aside money for regular savingsD. pay back a loan you borrowed from yourselfE. cut back on spending for essentials

3. Before investing, a person should have all of the following except

A. a savings account equal to two year's income B. sufficient income to exceed current needs C. savings to cover typical emergencies D. adequate auto and property insurance E. adequate life and health insurance

Tom and Netta Worth have applied for a loan. In order to process their application, the bank needs to have the Worth's balance sheet or net worth statement. Following is a list of their financial details:

$500 in checking $850 in unpaid

bills $2,500 in car loans $18,000 house

mortgage

2 cars worth a total of $6,500

stocks and bonds worth $12,000

house valued at $58,000

personal property valued at $10,00

4. What is the amount of the Worth's total assets?

A. $87,000 C. $37,000B. $83,000 D. $33,000

5. What is Tom and Netta's net worth?

A. $15,650 B. $11,650C. $61,650 D. $65,650

Name ______________________________________ Date ____________________


EMERGENCY FUNDSAn important goal of a financial plan is to protect against financial risk. Two ways people prepare for unexpected expenses and/or a decline in income are with an emergency savings fund and with insurance.

What would you do if one of the following emergencies happened to you?

Your car has been stolen and you need a car for your job.

You have a serious tooth ache. Your dental bill is already $800 and you do not have dental insurance.

You are laid off from your job.

Everyone should have savings to meet financial emergencies that are not covered by insurance. How much money should be in your emergency fund? Where should you keep this money?

The amount of money in the emergency fund will vary with each household. Factors that influence the size of the emergency fund include the amount your household spends for:

food rent or house payment utilities and home maintenance clothing and personal needs of household members household debt

Financial advisors suggest that you have money to cover at least three months living expenses in readily available funds. These funds should be placed in an insured bank or credit union, or in a money market mutual fund where savings can be withdrawn easily when needed.

INSURANCE

Common types of insurance include life, health, disability, property and liability insurance. A reputable insurance agent can help determine how much and what type of insurance is needed. When should you purchase insurance?

Purchase insurance when the amount of loss would be beyond what you could afford to pay in replacement costs.

Purchase insurance to protect against a loss that may be uncommon but would be catastrophic if it occurred, such as the death of the wage-earner.


Purchase health and disability income insurance if your employer does not provide such coverage.

Health insurance. Health insurance provides protection against financial loss resulting from illness, injury and disability. Some employers provide basic health insurance and limited disability insurance. Find out if your employer provides major medical insurance for long term care. Should you supplement the insurance provided by your employer?

Most people need income disability insurance to protect against loss of income if they should become disabled and unable to work. If not available through the employer, disability insurance can be purchased from life insurance companies.

Life insurance. The basic purpose of life insurance is to protect dependents from economic hardship if the wage earner should die. Young people with no children usually do not need life insurance. Young couples with children may need life insurance on both parents.

Life insurance comes in two types: term and cash value. Term life insurance pays only if the insured person dies within a specified period of time. Premiums for term insurance rise as a person grows older, but the cost is far less than cash value life insurance.

Cash value life insurance has a savings/investing element that term insurance does not have. It is initially priced from three to eight times higher than term insurance.

Many financial advisors suggest that young families who need insurance protection purchase term life insurance rather than cash value insurance. While it provides more protection for the money, it has no savings value.

Property and liability insurance. Property insurance provides protection against losses resulting from the damage to property, while liability insurance provides protection against losses suffered by others for which the insured person is responsible. Auto insurance combines property and liability insurance into a single package policy.

Landlords do not carry insurance on the personal property of tenants, so even renters need insurance to cover their personal possessions.

Sometimes it is better to use your emergency fund money for relatively small unexpected expenses rather than to purchase full insurance coverage. For example, a deductible insurance policy on your car will be significantly less expensive than full coverage. The deductible is the amount you pay before the insurance policy begins to cover repairs for damages caused in an accident.

Government Safety Nets While social insurance programs may be available to people in times of financial emergency, most have very strict requirements before a person can qualify. These programs are


supported by taxpayers or employers and provide limited assistance for those who meet eligibility requirements.

Worker's compensation provides for lost income and pays medical bills if the loss is work related.

Unemployment compensation provides some income to make up for lost wages for anywhere from 26 weeks to two years, depending upon the state and general economic conditions.

Social Security disability provides some income for those who are totally disabled. These programs do not fully replace lost income, but when they are combined with personal savings, they can provide an important safety net for people who are experiencing serious financial hardship.


Name _______________________________________________ Date __________________________

READINGS ON INVESTMENTS Read an article or pamphlet on an assigned investment topic and complete the following worksheet.

1. Title of Article_______________________________________________________ Source _____________________________________ Date__________________

Author (if given _____________________________________________________

2. Write a brief summary of the main ideas of the article or pamphlet.

_________________________________________________________________________________

_________________________________________________________________________________

_________________________________________________________________________________

_________________________________________________________________________________

_________________________________________________________________________________

_________________________________________________________________________________

_________________________________________________________________________________

_________________________________________________________________________________

3. Explain why you agree or disagree with the major ideas presented in the article or pamphlet. _______________________________________________________________________

_________________________________________________________________________________

_________________________________________________________________________________

Attach a copy of the article or pamphlet to this page.

UNIT 1 — The Basics of Financial PlanningTopic 5, Post-Test Exercise

POST-TEST EXERCISE

Reconsider the paragraph you wrote at the beginning of the unit.

Your uncle just gave you $1,000 to spend any way you wish.

What will you do with this money and why?

Have your feelings about the use of money changed?

This unit has highlighted basic financial planning principles to be considered prior to investing. After establishing a personal financial plan as a foundation, one can continue to build wealth through savings and investments.

Name ______________________________________ Date ____________________


STUDENT EXERCISE 3Directions: Read each statement carefully and mark in the blank a T for True or F for False.

_____ 1. People who have low incomes have little need to develop a personal financial plan.

_____ 2. Personal money management is easy; people rarely need to spend time and effort learning how to manage money.

_____ 3. People have a given set of financial values that remain with them for life.

_____ 4. A financial plan can help eliminate uncertainty and conflict about financial matters.

_____ 5. Investing should be the first priority in any financial plan.

_____ 6. Your educational level is an important indicator of your expected lifetime earnings.

_____ 7. It is against the law for employers to contribute to employee savings/investment programs.

Name ______________________________________ Date ____________________

HIDDEN WORD PUZZLECan you find and circle the hidden words? They read up, down, across, forward, backward,and diagonally.

A D P M O N E Y R K N A BD E A L L R A T I N G I UV I S D I S P U T E D I RE N S E A O D A N G R Y ER E E B T N E C R U O S AS D T T U A Y L E G A L UE I N F O R M A T I O N YS T A T E M E N T G E A TT S T N E T N O C V D E RY E H I R I N G A L A R OL V A L I D R S M R I F PE N D I P U R P O S E E EL I F E F C O N S U M E R

ADVERSE CONTENTS HIRING RATINGAGENCY DEBT INFORMATION REPORTASSET DENIED LEGAL SAVE, SOURCEBANK DISPUTE LIFE STATEMENT

BUREAU FIRM MONEY, ORAL STYLECONSUMER FUND PURPOSE VALID

See what other small words you can find.

HIDDEN WORD PUZZLE ANSWERA D P M O N E Y R K N A BD E A L L R A T I N G I UV N S D I S P U T E D I RE I S E A O D A N G R Y ER E E B T N E C R U O S AS D T T U A Y L E G A L UE I N F O R M A T I O N YS T A T E M E N T G E A TT S T N E T N O C V D E RY E H I R I N G A L A R OL V A L I D R S M R I F PE N D I P U R P O S E E EL I F E F C O N S U M E R

ADVERSE CONTENTS HIRING RATINGAGENCY DEBT INFORMATION REPORTASSET DENIED LEGAL SAVE, SOURCEBANK DISPUTE LIFE STATEMENT

BUREAU FIRM MONEY, ORAL STYLECONSUMER FUND PURPOSE VALID

OTHER WORDS AD DEN, DIP MEN RIDEALL END NET RINGAM FEE NO RIPAN FOR OF SOLAR

ANGRY GO OR SOAPE IN PEG SUMAT IT PORT TAM, TAN

BANK LEG PUT TARBED LIE RAP TEA, TEN

CIDER MAT RIB UP, YEH

ADDITIONAL RESOURCESSOFTWARE/VIDEO Consumer Rights Study Units 1-8 available in Word, PowerPoint, and Adobe on consumer credit and associated rights, Indiana Department of Financial Institutions at http://www.in.gov/dfi/education/StudyUnits/STUDY%20UNITS.htm.

The Budgeting Game. Software. Analyze budgets of five real life people. School license $149.00. 1994. C.W. Publications, Box 744, Sterling, IL 61081. 800-554-5537.

Choices and Decisions: Taking Charge of Your Life, Learning module and interactive video. VISA U.S.A., Inc. Post Office Box 8999, San Francisco, CA 94128-8999. 1991.

Credit Crunch. Software. A credit math challenge. School License. $159.00. 1998.

Ernst & Young's Total Financial Planner (CD-ROM). software. Garner, Robert J. (Editor), Robert B. Copeland, Barbara J. Raasch. John Wiley & Sons, 1996.

Everyone's Money Book. software. Goodman, Jordan E. Dearborn Trade, 1996.

Personal Finance Trivia Challenge. software. Teachers terminology and concepts. School license $159.00. 1998.

Why Do I Need A Budget? Video. $89.00. 1998.

TEACHING GUIDES Choices and Decisions: Taking Charge of Your Life. Teaching guide and software. VISA U.S.A., Inc. Post Office Box 8999, San Francisco, CA 94128-8999. 1991. Free to educators.

High School Financial Planning Program. National Foundation for Financial Education, 4695 South Monaco Street, Denver CO 80237. 1997. Free to educators.

Master Your Future. Video and teaching guide. MasterCard International. 800-624-9688. 1997. Free to educators.

Money Management: Budgets Aren't for Pushovers. Video and Teaching guide. Guidance Associates, Post Office Box 1000, Mount Kisco, NY 10549. 800-431-1242. 1994. $61.95

Personal Finance Economics: Wallet Wisdom. National Council on Economic Education, 1140 Avenue of the Americas, New York, NY 10036. 800-338-1192. 1996. $24.95

http://www.in.gov/dfi/education/StudyUnits/STUDY%20UNITS.htm

WEB SITES CNBC: http://www.cnbc.com

Consumer Credit Counseling Services:http://www.creditcounselors.com

Debt Counselors of America:http://www.dca.org

Jump$tart Coalition for Personal Finance Literacy:http://www.jumpstartcoalition.org

National Institute for Consumer Education: http://www.emich.edu/public/coe/nice

National Association of Securities Dealers, Inc.: http://www.nasd.com

BOOKS Bailard, Thomas E., David L. Biehl, and Ronald Kaiser. Personal Money Management, 6th ed. De Soto, TX: MacMillan, 1992.

Garman, Thomas and Ray Forgue. Personal Finance, 5th edition. Boston: Houghton-Mifflin Company, 1997.

Gitman, Lawrence J. Personal Financial Planning, 7th ed. Chicago: Dryden Press, 1996.

Kapoor, Jack, Les Dlabay and Robert Hughes. Personal Finance, 4th edition. Homewood, IL: Irwin, 1996.

Kobliner, Beth, Get a Financial Life: Personal Finance in Your 20s and 30s. New York: Fireside Books, 1996.

Mason, Jerald W. The Easy Family Budget. Boston:: Houghton Mifflin Company, 1990.

Investing for Life. A self-study course for teenagers. National Association of Investors Corporation. 711 West 13 Mile Road, Madison Heights, MI 48071. 1997. $40.00

http://www.nasd.com/

http://www.emich.edu/public/coe/nice

http://www.jumpstartcoalition.org/

http://www.dca.org/

http://www.creditcounselors.com/

http://www.cnbc.com/

WHAT IS A BUDGET?

A budget is a spending plan that you decide upon. It is based on how much you make (income) and what your monthly expenses are. By understanding your monthly income and expenses, you will be better able to manage your cash flow and determine how much debt, if any, you can assume.

HOW DO YOU FIGURE OUT A BUDGET?

You can use the following pointers and budget work-sheet to figure out your own monthly budget.

Start with your income. Figure out your monthly take-home pay. That's the amount you bring home each month after taxes, etc. are withheld.

Prepare a list of your monthly fixed expenses. Fixed expenses are the payments that you have to make each month, many of which are the same such as your rent or mortgage payment, utilities (take an average if not budgeted), and any credit payments you have.

List your monthly flexible expenses. Your flexible expenses may vary from month to month, but you can control them more readily than you can your fixed expenses. In other words, you can decide whether and how much you will spend on them.

“Flexible expenses” include food, clothing, transportation, household expenses, and personal spending for entertainment, eating out, and other items that you have control over.

DECIDE HOW MUCH TO SAVE AND STICK TO IT

It is important to think of savings as a fixed expense so that you are sure to save a set amount each month. Otherwise, it is easy to spend more on your flexible expenses and forget about savings.

Services are available through your employer and your bank to make it easier for you to save. These include

payroll deductions, direct deposit of your paycheck, and automatic savings plans.

The budget worksheet will help you determine how much you can save.

CREATE A SPENDING PLAN

You should be sure to have some savings you can utilize in a financial emergency. But, you should create a spending plan that allows you to reduce your debts. If you have credit card balances, you should use your extra money to pay those balances off quicker. With-drawing savings from low-interest accounts to settle high-rate loans will save you money in the long run. Extra money sitting in a savings account earning less than 5% could be better utilized by paying off credit card balances being imposed interest at 21%.

TRY TO REDUCE YOUR EXPENSES

Cut out any unnecessary spending such as eating out and purchasing expensive entertainment. Clip coupons, purchase generic products at the supermarket, and avoid impulse purchases. Above all, stop incurring new debt.

HOW TO DEAL WITH FINANCIAL EMERGENCIES

A sudden illness or the loss of your job may throw you off your budget and make it impossible for you to pay your bills on time. Whatever your situation, if you find that you cannot make your payments, contact your creditors at once. Try to work out a modified payment plan with your creditors that reduces your payments to a more manageable level. If you have paid promptly in the past, they may be willing to work with you. Do not wait until your account is turned over to a debt collector.

BUDGET WORKSHEET FIXED EXPENSES: Rent/Mortgage. $

$

Credit payments

Insurance. $

Medical $

Other $

FLEXIBLE EXPENSES: Food $

Clothing $

Transportation $

Household $

Personal $

Other $

TOTAL EXPENSES $

MONTHLY TAKE-HOME PAY $

LESS TOTAL EXPENSES $

SAVINGS $

The Indiana Department of Financial Institutions, Division of Consumer Credit has many other credit related brochures available, such as:

Answers to Credit ProblemsApplying for CreditAt Home Shopping RightsBankruptcy FactsBuried in DebtCharge Card Fraud

Choosing A Credit CardCo-SigningCredit and DivorceCredit Reporting and ScamsDebt Collection Problems?Deep in Debt?Equal Credit OpportunityFair Credit ReportingFair Debt CollectionGold CardsHang up on FraudHigh Rate MortgagesHome Equity Credit LinesHow to Avoid BankruptcyHow to Cut the Costs of CreditIdentity TheftLook Before you LeaseMortgage LoansOlder Consumers RepossessionReverse Mortgage LoansRule of 78s – What is it?Secured Credit Card ScamsShopping for CreditUsing Credit CardsVariable Rate CreditWhat is a Budget?What is the DFI?

Call our toll-free number or write to the address on the cover for a copy of any of the brochures listed or for further consumer credit information.

WHAT IS A BUDGET?

DEPARTMENT OF FINANCIAL INSTITUTIONS

Consumer Credit Division30 South Meridian Street, Suite 300

Indianapolis, Indiana 46204317-232-3955

1-800-382-4880

FINANCIAL TIPS One of the smartest things you can do is to get a grip on your finances. Here are a few suggestions for doing just that:

Use a checking account…

You'll find it easier to track your finances this way.

Develop a debt-reduction strategy

Decide how any debts accumulated, such as student loans, will be handled.

Draw up a budget…

By setting up a realistic budget and sticking to it, you'll reduce the likelihood of "living beyond your means." See brochure on "What is a Budget"? Use your budget to plan for future financial goals.

Consider your life insurance needs…

Consider purchasing a life insurance policy. The younger you are when you get an insurance policy, the lower the premiums will be.

Manage credit wisely…

Consolidate your credit cards. Try to get by on just one card - and use it only for emergencies. Credit card debt is one of the leading sources of financial difficulty.

Pay yourself first… Every time you get paid, deposit a small amount into an investment vehicle, such as a mutual fund. Not only will you be building up your financial resources, but you'll also get into the "investment habit" - which should last a lifetime.

By investing relatively modest amounts of money on a regular basis into growth instruments, you have the potential of eventually achieving significant capital appreciation.

If you are more conservative, put your savings into a certificate of deposit which is insured by the federal government.

Take full advantage of all your savings opportunities

If your employer offers a 401(k) or other tax advantaged retirement plan, contribute as much as you can - and put most of your money into the "growth" funds that are offered.


Answers to Credit ProblemsApplying for CreditAt Home Shopping RightsBankruptcy FactsBuried in DebtCar Financing ScamsCharge Card FraudChoosing A Credit CardCo-SigningCredit and DivorceDeep in Debt?Equal Credit OpportunityFair Credit ReportingFair Debt CollectionGold CardsHang up on FraudHigh Rate MortgagesHome Equity Credit LinesHow to Avoid BankruptcyIndiana Uniform Consumer Credit Code Look Before you LeaseMortgage LoansRepossessionRule of 78s – What is it?Scoring for CreditShopping for CreditUsing Credit CardsVariable Rate CreditWhat is a Budget?What is the DFI?


FINANCIAL TIPS

DEPARTMENT OF FINANCIAL INSTITUTIONSConsumer Credit Division

30 South Meridian Street, Suite 300Indianapolis, Indiana 46204

317-232-39551-800-382-4880

WHAT IS A CREDIT REPORT? Your credit report contains important information about you. It generally includes facts about your identity, where you work, live, your bill-paying habits, and public record information. Credit grantors use credit reports to determine whether or not you will be extended credit. Identity information includes your name, address, marital status, Social Security number, date of birth, number of dependents, and previous addresses. Employment data includes your present position, length of employment, income, and previous jobs. Factual information about your credit history consists of your credit experiences with specific credit granters. Public record information includes civil suits and judgments, bankruptcy records or other legal proceedings recorded by a court. A credit report does not contain information on arrest records, specific purchases, or medical records.

Companies called credit reporting agencies or credit bureaus compile and sell your credit report to businesses, which use it to evaluate your applications for credit, insurance, employment, and other purposes allowed by federal law. Therefore, it is important that your credit report contain complete and accurate information.

It is advisable that you review your credit report every three or four years to check for inaccuracies or omissions. You also may want to check your report sooner if you are considering a major purchase, such as buying a home.

HOW CAN I OBTAIN A CREDIT REPORT?

If you have been denied credit, insurance, or employment because of information that was supplied by a credit reporting agency, the Fair Credit Reporting Act requires the report recipient to give you the name and address of the credit reporting agency that supplied the information within 30 days after the credit was denied. If you contact that agency within 60 days of receiving the denial notice, you can receive a free copy of your credit report.

If you simply want a copy of your report, call the credit reporting agencies listed in the Yellow Pages under "credit" or "credit rating and reporting." Call each credit report agency listed since more than one agency may have a file on you, some with different information. You may have to pay a reasonable charge for each report.

Three large national credit bureaus supply most credit reports: Experian, Equifax, and Trans Union. You may want to contact each of them for a copy of your report.

Experian (Formerly TRW ) http://www.experian.com P.O. Box 949Allen, TX 75013-0949(888)397-3742Free

Equifax Credit Information Services, Inc. http://www.equifax.com P.O. Box 740241

Atlanta, GA 30374-0241 (800) 685-1111 $8 Fee

Trans Union Corporation http://www.transunion.com Trans Union Consumer Relations 760 West Sproul Road, P.O. Box 390 Springfield, PA 19064-0390 (800) 916-8800$8 Fee

When you show proper identification, the credit reporting agency must then disclose to you all its information and identify the sources of that information. The law requires the credit bureau to disclose the "nature and substance" of the information in the file. You must also be informed about anyone who obtained reports for employment purposes in the past two years, plus the names of all others who requested credit reports or other information about you in the past six months.

A consumer reporting agency will send a free report once in any 12-month period upon request of a consumer if the consumer is unemployed and intends to apply for employment in the 60-day period beginning on the date on which the certification is made, is a recipient of public welfare assistance, or has reason to believe that the file on the consumer at the agency contains inaccurate information due to fraud.

HOW CAN I CORRECT ERRORS ON MY CREDIT REPORT?

You have the right, under the Fair Credit Reporting Act, to dispute the completeness and accuracy of information in your credit file. When a credit reporting agency receives a dispute, it must reinvestigate and record the current status of the disputed items within a "reasonable period of time," unless it believes the dispute is frivolous or irrelevant."

If the credit reporting agency cannot verify a disputed item, it must delete it. If your report contains erroneous information, the credit reporting agency must correct it. For example, if your file showed an account that belongs to another person, the credit reporting agency would have to delete it. If an item is incomplete, the credit reporting agency must complete it. For example, if your file shows you were late in making payments on accounts, but failed to show that you were no longer delinquent, the credit reporting agency must show that your payments are now current.At your request, the credit reporting agency must send a notice of correction to any report recipient who has checked your file in the past six months.

WHAT CAN I DO IF I HAVE A DISPUTE?

You must make your dispute directly to the credit reporting agency. Although the Fair Credit Reporting Act does not require it, the Federal Trade Commission staff recommends that you submit your dispute in writing, along with copies (NOT originals) of documents that support your position.

In addition to providing your complete name and address, your letter should clearly identify each item in your report you dispute; explain why you dispute the information; state the facts; and request deletion or correction. You may want to enclose a copy of your report with the items in question circled.

Send your dispute by certified mail, return receipt requested and keep copies of your dispute letter and enclosures.

DUTY TO CORRECT AND UPDATE INFORMATION ..

A person who furnishes information to one or more consumer reporting agencies and has furnished to a consumer reporting agency information that the person determines is not complete or accurate, shall promptly notify the consumer reporting agency of that determination and provide any corrections to that information to the agency and any additional information that is necessary to make the information provided by the person to the agency complete and accurate. The person shall not thereafter furnish to the agency any of the information that remains not complete or accurate.

CLOSED ACCOUNTS. . . .

A person who regularly and in the ordinary course of business furnishes information to a consumer reporting agency regarding a consumer who has a credit account with that person shall notify the agency of the voluntary closure of the account by the consumer, in information regularly furnished for the period in which the account is closed.

YOUR SIDE OF THE STORY. . . .

If a reinvestigation does not resolve your dispute, you can file a statement of up to 100 words to explain your side of the story. The credit reporting agency must include this explanation in your report each time it sends the report out. As well as to each report made within 60 days prior to your request. Credit reporting agency employees often are available to help you word your statement. ARE ALL MY ACCOUNTS LISTED IN MY CREDIT REPORT? Most credit grantors report their data to credit bureaus at least monthly. Some smaller lenders, however, do not report information to credit bureaus.

HOW LONG WILL INFORMATION STAY ON MY REPORT?

Be aware that when negative information in your report is accurate, only the passage of time can assure its removal. Credit reporting

agencies are permitted by law to report bankruptcies for 10 years and other negative information for 7 years.

Also, any negative information may be reported indefinitely for use in the evaluation of your application for:

$150,000 or more in credit;. a life insurance policy with a face amount of $150,000 or more; or consideration for a job paying $75,000 or more.

ADDING ACCOUNTS TO YOUR FILE…

Your credit file may not reflect all of your credit accounts. Although most national department stores and all-purpose bank credit card accounts will be included in your file, not all creditors supply information to credit reporting agencies.

If you have been told that you were denied credit because of an "insufficient credit file" or "no credit file" and you have accounts with creditors that do not appear in your credit file, you can ask the credit reporting agency to add this information to future reports. Although they are not required to do so, many credit reporting agencies will add other verifiable accounts for a fee.

WHAT ABOUT A CREDIT REPAIR COMPANY? It is recommended that a credit repair company be looked at long and hard before being used. The law gives a consumer certain rights to accuracy in the credit report. If a credit report is repairable, it can be done by the consumer. If it contains accurate, negative information, handing money to a credit repair company will not help. They cannot remove accurate information or information you cannot have removed.

WHO CAN ORDER MY CREDIT REPORT? There are limited circumstances under which a credit bureau may furnish consumer credit reports. These permissible purposes are:

In connection with credit or collection transactions. For employment purposes. For the underwriting of insurance. For the determination of a consumer's eligibility for a license. Other legitimate business transactions initiated by you. To review an account to determine whether you continue to meet the terms of the account. Court orders meeting specific requirements. At the your written instruction.


Answers to Credit ProblemsApplying for CreditAt Home Shopping RightsBankruptcy FactsBuried in DebtCar Financing ScamsCharge Card FraudChoosing A Credit CardCo-SigningCredit and DivorceCredit and Older ConsumersDeep in Debt?Equal Credit OpportunityFair Debt CollectionGold CardsHang up on FraudHigh Rate MortgagesHome Equity Credit LinesHow to Avoid BankruptcyIndiana Uniform Consumer Credit Code Look Before you LeaseMortgage LoansRepossessionReverse Mortgage LoansRule of 78s – What is it?Scoring for CreditShopping for CreditUsing Credit CardsVariable Rate CreditWhat is a Budget?What is the DFI?


FAIR CREDIT REPORTING

DEPARTMENT OF FINANCIAL INSTITUTIONSConsumer Credit Division

30 South Meridian Street, Suite 300Indianapolis, Indiana 46204

317-232-39551-800-382-4880

Basics of Saving & Investing : Financial Decisions (Unit 1) · Web viewBasics of Saving and...

Documents

Transcript of Basics of Saving & Investing : Financial Decisions (Unit 1) · Web viewBasics of Saving and...